Indonesia tipped to turn on flour power as mills ramp up

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An aerial view of the US$70 million Intermalt facility part owned by CBH Group in Cai Mep, Vietnam.
Camera IconAn aerial view of the US$70 million Intermalt facility part owned by CBH Group in Cai Mep, Vietnam. Credit: Interflour Group

Price will remain king among Indonesia’s 30 flour mills as they aim to boost their milling operations by 200,000 tonnes this year, despite most only operating at 60-70 per cent capacity.

The United States Department of Agriculture’s latest Indonesia Grain and Feed Update revealed the burgeoning optimism in the Indonesian flour milling industry would increase “price sensitivities” as the mills aimed to reach 12.8 million tonnes milling capacity in 2021-22.

“As more mills open and expand, competition in the market is expected to further increase price sensitivities, which is already a major factor,” the report said.

Indonesia is expected to wind back its wheat imports to 10.5mt in 2021-22, with a surge in COVID-19 cases lowering consumer purchasing power.

Despite this, demand for wheat from Indonesia’s 30 feed mills is expected to grow from 1.3mt in 2020-21 to 1.5mt in 2021-22. Australia has regained its title as Indonesia’s biggest wheat supplier for the first time in three years, seizing the top spot from Canada and Ukraine thanks to a combination of high freight rates and bumper crops.

More than 3.5mt of Australian wheat was exported to Indonesia in 2020-21, with hopes it could be 4mt in 2021-22.

The figures far exceed the million tonnes exported to Indonesia in 2019-20 after the prized trade was stymied by low wheat production and ferocious international competition.

Indonesians eat about 31kg of wheat a year, with wheat-based foods becoming more common as a trend towards urbanisation and a growing middle class align with an increasingly diverse diet.

The COVID-19 pandemic and associated economic slowdowns have decreased the growth rate of wheat consumption for food as more people eat at home.

Indonesian feed mills traditionally import more than 30 per cent of their feed rations, with the USDA report noting wheat was an “attractive” option price-wise — despite prices increasing 13.7 per cent between June 2020 and 2021.

While corn is the main staple — making up 40 per cent of Indonesian feed formulation — concerns over import restrictions on corn for feed use, the seasonality of domestic supplies, and limited drying and storage facilities, have feed mills turning to Australia for feed wheat.

The Indonesia-Australia Comprehensive Economic Partnership Agreement, ratified in July, provides duty free access for 500,000 tonnes of Australian feed grain per year — placing Australian wheat exporters in a more favourable position than some of their international counterparts.

The USDA report also revealed the Indonesian Feed Millers Association lobbied the Indonesian Government authorised a state-owned company to import 240,000 tonnes of wheat for feed from Australia in May.

Despite this small win for Australia, the USDA report noted feed wheat demand was expected to decline, after rebounding to 1.5 million tonnes in 2021-22, because it was not as nutritious as a feed ration compared to corn, and was more difficult to buy and store than local corn.

Indonesian exports of wheat products are expected to rebound from 300,000 tonnes in 2020-21 to 350,000 tonnes in 2021-22, six per cent of which are destined for Australia.

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